13. Historical survey of the events in the 1970-s

It really started in the 1930's, when Bernard Baruch acted as New York's liaison man with Roosevelt. John J.McCloy took over that function when Truman came in. First he ran the newly created World Bank. Then he took over the job of running West Germany from Lucius Clay. He was "their" man, not Truman's,and he was slotted into these positions because both were key to keeping world safe for American capitalism in the postwar era. Clay, by the way, moved up to the board of Lehman Brothers. McCloy eventually returned to New York, where he became chairman of the Chase Manhattan Bank, and a director of at least a dozen of America's largest multinationals. Eisenhower had his Charlie Wilson, who put it right out into the open with his crack about what is good for General Motors being good for the United States. Kennedy's policies were shaped with the help of men like George Ball (another Lehman Brothers man) and George McBundy, who graduated from running American foreign policy strategy to running the Ford Foun­dation's megabucks. Johnson inherited MacNamara, the latter repre­senting an almost classic example of how the "system" works. He moved from running Ford Motor Company to running the Vietnam war from the Pentagon to running our old friend the World Bank. It might be said that Nixon was helped both into and out of the White House by the biggest bond lawyer in Wall Street annals, John Mitchell. And Jerry Ford was given little choice but to delegate half of his Presidency to the leading alumnus of the Rockefeller training camp, the good Herr Doktor Kissinger. Finally, the Coach himself, Nelson Rockefeller, took a leave of absence from the Big Apple to make sure Jerry did not screw up the other half.

By the end of the 1970's, the New York stranglehold on Washin­gton, and therefore on global power, was, if anything, greater than ever. Because without the blessing of the New York financial community, the Federal Goverment could have become, as they say, inoperative — within a very short time. New York City had disco­vered that in 1975. The city had been chronically spending billions more than it had been taking in in taxes. The Mayor and everybody else naturally assumed that the New York banks would cheerfully arrange to lend the city the difference, indefinitely. Well, it did not work out that way. He was told by Wall Street to either run the place their way or they would let the city go bankrupt. What could he do? Thereafter Gracie Mansion was openly controlled not by Democrats or Republicans, but by the Wall Street gang. At the end of 1978, the Federal Government was in exactly the same position, except that the scale of its indebtedness, and thus expo­sure to the New York banking community, was immeasurably greater. Uncle Sam was in hock to the New York gang to the tune of well over one-half trillion dollars, and every week he had to borrow at least an additional billion to stay in business. For the "Great Recession" of 1974-75, and the massive unemployment it had created, had not just gone away, like all other post-World War Two reces­sions. Unemployment did not return to a "normal" 4 percent. No, it dropped back to 7.5 percent in 1976, and then started soaring again.

Thus the "temporary measures" that had been initiated in mid-decade— tax rebates, extended unemployment benefits and welfare payments, food stamps, clothing stamps, federal support for state and local governments to assist them in their support of an increasingly idle population — all became permanent. So the "temporary" federal budget deficits of $60 billion per annum had not only continued, but by 1978 had risen to more than $100 billion.

To increase taxes would have been the classical way to bring goverment financing back into equilibrium—in fact, the only way. But higher taxes would no doubt have brought slump and still higher unemployment. That was politically and socially impossible. So in­stead, like New York City a few years back, the men in Washington had merely borrowed and borrowed and borrowed to make up the difference between the country's income and its expenditures. And, at least until the end of 1978, the New York banks and their satelli­tes around the nation had just lent and lent and lent. They really had no choice. The alternative would have been the collapse of government, and the end of the system which made Wall Street possible.

The problem was that the banks were starting to run out of money! And "they" had concluded that this problem could only be alleviated in one of two ways. The easiest would have been simply to print money, through the mechanisms of the Federal Reserve System and the US Treasury. But that would have led to runaway inflation, which in turn would most likely have also led to the demise of the system. The vastly superior solution was to tap a new source of savings — massively and quickly. And such a source existed in the Middle East, where the oil nations had accumulated a hoard of savings that was absolutely unique in the history of mankind — over half a trillion dollars, an amount almost equal to the value of all the shares of all the corporations listed on the New York Stock Exchange. This represented the wealth that had taken the United States two centuries to build up; the Arabs had taken less than a decade. Salvation for Wall Street could be found in Riyadh — and perhaps only in Riyadh.